Premiums decline on new property launches
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Premiums decline on new property launches

Premiums decline on new property launches

Perhaps inevitably the re-sale premiums on new property in Dubai have started to decline. This is going to have quite a substantial impact on the market as speculators find their profits squeezed.

    When the Dubai property freehold property market began almost three years ago, the ability to trade 'on the margin' became apparent.

    Basically you put 10% down on a new property and then could trade in on within a few weeks. By then the full-price was 10% higher and you had doubled your initial down payment.

    Since then at each new project launch the developers have adjusted prices upwards. But such is the enthusiasm for Dubai property – and some would argue such was its undervaluation – that returns for speculators have continued to be spectacularly good.

    But this pattern of easy money now looks to be coming to an end. For one thing far too many people are now trying to take this easy path to riches. For another the supply of new developments is now so large that the emergence of an immediate final buyer is not so readily apparent.

    It is therefore somewhat sobering that apartments on the iconic Burj Dubai which sold-out overnight during its launch last autumn, are now being offered at the wafer-thin premium of 6%. By the time transfer charges and agents fees are paid there will be almost nothing left for the speculator.

    This does suggest that this particularly investment party is now over. Instant investment profits will now have to give way to a more sober analysis of potential rental incomes.

    With Dubai rental yields presently in the 7-9% range this should not give real investors too many sleepless nights. However, the day of the speculator is almost over and this will now become a market driven by more fundamental forces.

    Such factors as supply and demand, and the cost and availability of mortgages will now matter far more in Dubai.

    What the era of the speculator has left behind is a market much more fairly valued in comparison to major international markets. This has been a vital step in moving from a closed to a far more open property sector, and it will be interesting to see how the market develops from here.

    But the lesson from around the world is that real estate is a long-term investment, and that taking the long-view works best. The danger of the short-term trading mentality is that you don't know when to stop and always risk being caught out at the top of the market along with every one else.

    A long-term property investor can sit out the peaks and troughs and see his or her property rise in value over the years thanks to rental inflation and domestic economic conditions. And in the case of Dubai an individual long-term investor also saves his or her large rental payments by paying off a mortgage.
    Author
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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